Taiwanese investment in mainland China and Southeast Asia started to
boom in the late 1980s. The financial sources of this overseas investment
included funds from parent companies, domestic banks in the parent country,
local banks in the host country, banks in other regions and other sources. These
funds were used as investment capital and working capital. All of these
financial activities are related to the location or size of firms and to their
operational performance.

A thorough survey of Taiwanese investment in mainland China and Southeast Asia was executed and the following results are derived. Whether the
investments are in mainland China or in Southeast Asia, most of the funds are
from the firm's parent companies in Taiwan. The most frequently adopted
financial channels were domestic banks or a third-country bank in Hong Kong.
The Taiwanese investments in mainland China rely more on their parent
companies for working capital than do those in Southeast Asia.

Probit regressions were used to find out which factors determined the
sources of Taiwanese investment in mainland China. The results show that
larger parent companies have a greater tendency to provide overseas affiliates
with investment capital and working capital than do smaller ones. The results
also show that overseas affiliates with higher profit ratios find it easier to
obtain funds from banks. Companies in areas other than south China have
more connections with local banks and a higher degree of equitization of
machines and technology.

INTRODUCTION

Taiwanese firms have made many overseas investments, especially since the late 1980s, when economic relations between China and Taiwan started to increase

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